It’s not quite a revolution but the arrival of independent financial advisers is shaking up old habits among Spanish investors and fund managers.
Victor Alvargonzalez, CEO of advising company Profim, one of Spain’s leading EAFI, says the banks’ response to the growth of EAFIs so far has been pragmatic.
They are not very worried because EAFIs are still very small, he says. At this stage it often comes down to a micro-competition, but that could change in future. “Long term Spanish investors and savers will find out what is common sense which is that the seller of a product is not a good adviser and the producer is not a good adviser. He wants to sell his product and that’s the main thing.” So competition, he says, will grow, the question is how long it will take to become more significant.
The basic philosophy behind EAFIs is that they should be completely independent to avoid the conflict of interest that can arise when a company is both the producer of a financial product and at the same time advising its clients in buying financial products. Clients are also better served by an independent adviser, Alvargonzalez says.
Profim pre-dates the new EAFIs by 15 years, well before the sector came to be regulated. Now EAFIs must be authorised to operate by the CNMV which keeps a close watch on the sector.
At the launch of the EAFIs association, Antonio Moreno, who supervises investment institutions at the CNMV, stressed the importance of the new rules and responsibilities governing the sector. Providing financial advice requires a high degree of supervision and expertise on behalf of market participants. EAFIs, he said, were “select club” whose members required a high level of expertise in order teh be able to adequately provide advice to investors.
EAFIs are not supposed to sell their own products, though some are part of a wider group and this is frowned upon by the CNMV as it undermines their independence should they recommend their own fund.
These are rare cases says Alvargonzalez. In general, EAFIs are independent, most of them do not have their own products and work with an open architecture. “We (at Profim) have a 100% open architecture and we can recommend any product in the market,” he says. To be really independent, the most important thing is not to have products.
“EAFIs are really aware that they are there to provide advice not to sell products for companies, though I don’t know what will happen in the future.”